Blogging About Infrastructure News, Policy & Industry Developments

As the December 31, 2018 deadline approaches for freight, passenger, and commuter railroads to implement Positive Train Control (“PTC”), the Federal Railroad Administration (“FRA”) is reporting on the progress of individual railroads in complying with the mandate.

In 2008, Congress passed the Rail Safety Improvement Act and mandated that certain railroads carrying passengers or hazardous materials are required to install PTC. The FRA describes PTC as a “communication-based/processor-based train control technology” designed to prevent “train-to-train collisions, overspeed derailments, incursions into established work zone limits, and the movement of a train through a main line switch in the wrong position.”

Congress initially established December 31, 2015 as the deadline for railroads to implement PTC, but later extended the deadline to December 31, 2018.[1] Railroads may receive an additional extension of time to comply if the following statutorily mandated criteria are satisfied: all PTC hardware is installed, all necessary spectrum is acquired, all relevant personnel are trained, a revised PTC Implementation Plan is submitted to FRA, and the railroad has made sufficient progress on Revenue Service Demonstration.[2]

The FRA report of railroad PTC progress is collected from the railroads Quarterly PTC Progress Reports and FRA’s latest data is current up to the first quarter of 2018. In this latest update, the FRA is reporting:

The U.S. Senate Committee on Commerce, Science, & Transportation (“Commerce Committee”) recently held a nomination hearing to fill two vacancies on the Surface Transportation Board (“STB”), the economic regulator of railroads. The nomination hearing of Patrick Fuchs and Michelle Schultz provided Senators with a venue to vent concerns related to the U.S. rail system. In particular, Senator Wicker (R-MS) voiced concern over freight train interference of Amtrak passenger trains.

Congress created Amtrak in 1970 to relieve freight railroads of their responsibility to provide intercity passenger rail service. In exchange, Congress required the freight railroads to permit Amtrak to have access to their rail lines.[1] In 1973, Congress codified the requirement to give Amtrak trains “preference” over freight trains. Under federal law, “Amtrak has preference over freight transportation in using a rail line, junction, or crossing.”[2]

In the Commerce Committee hearing, Senator Wicker prefaced his questions to the nominees with a monologue about Amtrak’s right to proceed ahead of freight traffic when Amtrak and a freight train converge at the same time. Senator Wicker explained that under the current legislative framework, “Amtrak has preference over freight transportation in using a rail line.” But, he expressed concern that the law is not stringently followed – “in reality freight railroads have consistently denied such preference to Amtrak, in fact only 47% of long distance [passenger] trains were on-time at stations in FY 2017 and this is largely attributable to freight’s refusing to provide preference to passenger rail.”

See Senator Wicker’s statement here: (skip to 1:14:20 – 1:15:16)

At this time, preference can only be enforced through U.S. Department of Justice action.[3] The STB’s authority to hear on-time performance complaints relating to preference is in question after a decision at the 8th Circuit and a series of decisions in the D.C. Circuit.[4] Amtrak has asked Congress to provide it with a private right of action to enforce its statutory preference rights.[5]

The Automated People Mover (APM) train system project at Los Angeles International Airport (LAX) reached a remarkable milestone this week with Los Angeles City Council’s unanimous approval of a $4.9 billion agreement with LAX Integrated Express Solutions (LINXS).

With City Council’s approval in hand, the City, acting through the Los Angeles World Airports (LAWA) Board of Airport Commissioners (BOAC), and LINXS reached commercial close on April 11th, signing the project agreement. LINXS will now proceed to obtain private financing for the project, and financial close is expected in mid-June.

Courtesy of LAWA

The agreement provides that LINXS (Developer) will design, build and partially finance the APM system, and then operate and maintain the APM system over a 25 year period. LAWA will make milestone payments to LINXS during construction. Once the APM system is available for passenger service, LAWA will make “availability payments” to LINXS, which may be adjusted downward if the APM system does not meet specified availability and performance requirements. LAWA’s APM is the first APM system to be procured through an availability payment P3 delivery model.

The APM system will include six stations and up to 9 electric powered trains, each with four cars, in simultaneous operation. The APM trains will travel on an elevated 2.25-mile long guideway, easing access into and out of the second largest airport in the United States (LAX) and connecting travelers to LA Metro’s Crenshaw Light Rail Line, intermodal transportation facilities and a consolidated rental car center.

The Northern Lights Express intercity rail proposal, connecting Minneapolis and Duluth, Minnesota with a stop in Superior, Wisconsin, advanced forward following a Finding of No Significant Impact (“FONSI”) from the Federal Railroad Administration (“FRA”). The FRA’s decision found that the proposed rail project would not have any significant environmental impacts and allows the project to advance beyond the environmental phase.

Project proponents envision a rail service connecting six stations operating across existing BNSF Railway track. The Northern Lights Express trains would travel at 90 miles per hour over 152 miles. The new rail service would operate four round trips per day. The majority of the track is in Minnesota, but 23 miles will cross Wisconsin.

The project would require construction of 42 miles of mainline and sidings to permit the Northern Lights Express passenger trains to share the corridor with BNSF Railway’s freight trains. In order to accommodate higher passenger train speeds, the project requires rehabilitating the existing rail line, which will require new turnouts, crossovers, and improving the ballast.

The FRA, acting as the lead federal agency, provided $5 million in grant funding and the Minnesota DOT provided $3 million for the environmental analysis, preliminary engineering, service development, and financial management plan. Although, FRA’s issuance of a FONSI is a significant step forward for the project, funding for the final design and construction has so far not been identified.

Infrastructure Ontario and Metrolinx have awarded a fixed-price design-build-finance $245.5 million contract to upgrade Agincourt, Milliken, and Unionville GO stations on the Stouffville GO corridor. The winning bidder, EllisDon Transit Infrastructure (EDTI), will deliver the project using Infrastructure Ontario’s Alternative Financing and Procurement model. EllisDon constituents will provide financing and construction while WSP / MMM Group will be in charge of the design. The project includes upgrades to tracks, platforms with canopies, new pedestrian connections, and new amenities at the three stations.

The scope of work also includes a new grade separation with a railway overpass bridge at Steeles Avenue. Design work is expected to begin this month, with construction beginning in September 2018 and substantial completion planned for December 2020.

The Stouffville Corridor Stations Improvement project is part of the larger GO Regional Express Rail (RER) program, one of the largest transit infrastructure investments in North America. The Province of Ontario is investing $21.3 billion to transform the GO Transit Network from a commuter transit system to a regional rapid transit system, with electrified service on core segments, across the Greater Toronto and Hamilton Area over the next decade. The number of weekly trips across the entire GO rail network is projected to grow from 1,500 to 6,000 by 2024-2025.

The White House released its long-awaited infrastructure proposal to Congress this morning, along with the President’s fiscal year 2019 budget proposal. While elements have been hinted at and leaked before, the 55-page document released today provides significant new details. Though the Administration began to advance discrete priorities by executive action this past year, this broad proposal will require legislation. The Administration has opted to leave to Congress the drafting of the bill, just as it did with tax reform.

The White House proposal includes:

Creation of new federal infrastructure programs that (1) incentivize project sponsors to secure new revenue and deliver projects more efficiently, (2) provide funds for innovative and transformative projects, (3) encourage investment in rural communities, and (4) increase the capacity of federal loan programs.

Providing more control to state and local project sponsors to prioritize projects and make investment decisions.

Elimination of the transportation and state volume caps on Private Activity Bonds and expansion of eligible asset classes.

Expansion of TIFIA eligibility to include airports and maritime and inland ports.

Removal of federal tolling limitations on the Interstate System.

Conditioning federal transit funds for major capital projects on the use of value capture financing.

Reducing the federal environmental review and permitting timeline for infrastructure projects to two years.

Expansion of federal workforce training programs.

An official summary of the proposal can be found here. The White House infrastructure proposal requests that Congress allocate $200 billion in new federal spending over the next ten years, estimating that will generate an additional $1.5 trillion in total infrastructure investment through state and local revenue measures such as those recently passed in Los Angeles, Austin, Seattle, and Wyoming.

While the White House does not specify how Congress should fund or offset the $200 billion in additional infrastructure spending, its accompanying 2019 budget proposal will generate significant controversy regarding transportation, recommending a significant reduction in federal spending for Amtrak and transit capital projects and proposing that outlays from the Highway Trust Fund be aligned with receipts (which, according to the latest Congressional Budget Office estimate, would begin to result in reduced outlays for existing programs beginning in 2021).

Will this prove to be a negotiating position, encouraging Congress to offer up alternative sources of funding to avoid these draconian cuts? Indeed, a senior White House official noted recently that $200 billion in additional federal spending is the minimum and that the final number may well rise significantly once Congress begins its consideration of the infrastructure proposal.

A key indicator for the infrastructure proposal’s success on Capitol Hill will be whether congressional negotiators start from the premise that any new infrastructure legislation must supplement, and not replace, existing federal spending. There is a fear that if this proposal replaces existing programs, it would actually be a policy regression, devolving responsibility for critical infrastructure development to the states, instead of asserting the importance of the federal role in partnering with state and local project sponsors.

The bottom line is that governments at all levels—federal, state, and local—are not spending enough to keep up with the nation’s infrastructure backlog, let alone modernize the physical backbone of our economy. Given the scarcity of infrastructure funds, any new infrastructure initiative must supplement existing programs instead of cutting or replacing them. Therefore, using new federal infrastructure funding as a carrot to incentivize increased investment at the state and local levels is a realistic policy goal.

This is not a new idea. Congress included in the Fixing America’s Surface Transportation (FAST) Act seed money to leverage non-federal dollars for projects of national or regional significance. The Administration’s funding notice for the FAST Act program essentially serves as a pilot program for the incentive concept included in today’s proposal.

In taking these ideas from concept to reality, the House will be led by Transportation and Infrastructure Committee Chairman Bill Shuster. The retiring Shuster will be unbound by reelection pressures and has a track record of working effectively across party lines. In the Senate, multiple committees with overlapping jurisdictions will likely be involved, including the Commerce Committee, led by Republican Conference Chairman John Thune, the Environment and Public Works Committee, led by Republican Policy Committee Chairman John Barrasso, and the Banking and Finance Committees.

By all accounts, Congress intends to tackle the Herculean task of sustainably resolving the Highway Trust Fund’s systemic insolvency. Not tackled purposefully in over twenty-five years, Chairman Shuster has made this a priority, and Transportation and Infrastructure Committee Ranking Member Peter DeFazio has long been a champion for additional revenue and laid out a number of potential options in a recent white paper distributed at the House Democratic Retreat.

The mere fact that so much political attention is now focused on infrastructure investment—from both parties, in both Chambers, and from the Administration—makes this a rare moment in time. Proposing a massive infrastructure investment outside of the normal transportation authorization process allows policymakers the luxury of thinking about what long-term federal infrastructure policy ought to be, absent the constraints of existing program implementation. For this reason, the White House infrastructure proposal represents an historic opportunity to bring the nation’s infrastructure into the twenty-first century. It is essential that all stakeholders seize this opportunity for shaping a bipartisan initiative that will incentivize permanent paradigm shifts and lasting positive outcomes.

We will be posting additional analysis and updates in the coming weeks, so stay tuned!

Much has been said already about President Trump’s call to “rebuild our crumbling infrastructure,” in his first State of the Union address. The President asked Congress to advance a $1.5 trillion infrastructure plan that, in part, should be “leveraged by partnering with state and local governments and, where appropriate, tapping into private sector investment.”

But not all “crumbling infrastructure” is state and local infrastructure. The federal government’s infrastructure also needs attention (e.g., river locks, some dams and levees, federal buildings, etc.). In late January of this year, a purported summary of President Trump’s infrastructure “funding principles” briefly described two strategies for funding federal infrastructure: a planned executive order allowing for disposal of federal assets and creation of a federal capital financing revolving fund, presumably to help federal agencies finance their improvements.

Notably absent among these “funding principles” is availability of the P3 delivery strategy for federal assets. The likely reason is a remaining federal barrier: the need to change the federal Office of Management and Budget’s (OMB) relevant scorekeeping guidelines when evaluating a large-scale, federal capital project.

Scorekeeping guidelines measure the budget effects of a proposed federal contract relative to the contracting agency’s budget authority. For federal obligations under federal projects involving private capital, OMB Circular A-11 requires that all of any long-term obligation be “scored” in the first fiscal year, rather than in each fiscal year of the obligation. A fundamental, favorable risk allocation under many P3 structures is to contract for design and construction, but also to shift associated capital costs, to a private partner in exchange for the promise of repayments and a return over time. By scoring all such payments in the first year, the federal entity cannot realize this benefit of a P3.

On the same day as the State of the Union address, an American Bar Association committee published a white paper, titled “The Crisis in the Federal Government’s Infrastructure: Additional Approaches to the Current Federal Budgetary Scoring Regime.” The Committee’s paper – a follow on to a white paper originally published in 2008 – was previewed in late November in a discussion about removing federal barriers to infrastructure development, which was held in Washington D.C. among the paper’s authors, President Trump’s Special Assistant for infrastructure, D.J. Gribbin, and several interested government employees, decision- and policy-makers, and private practitioners in the infrastructure space. Both papers describe in detail and then confront the impediment that the Circular A-11 scorekeeping guidelines pose to federal use of P3s, which effectively frustrate use of P3 project delivery to address pressing federal infrastructure needs.

In the 2008 paper, the Committee offered solutions to modify Circular A-11 scorekeeping guidelines to align the federal government with best practices for state and local (and international) infrastructure funding: changing certain scoring criteria, considering lease payments on the basis of their present value, treating sale/leaseback, purchase options or infrastructure projects as “operating leases” (thus removing them from the onerous scoring rule); and offering a menu of risk assessment, valuation and legislative change suggestions that lower projects costs or offer longer-term payment streams outside of the budget cycle.

The 2018 paper adds two suggestions. First, score the federal government’s costs on net present value of cash flows from the government over the life of the transaction, taking into account the private party’s obligations and adjustment for the risk of private party default, similar to its 2008 suggestion. Second, create “safe harbors” for infrastructure projects that allow annual scoring similar to that described above, arguing that existing and long-standing federal contracts that employ energy savings performance contracts (ESPCs) effectively do just that.

The removal of budgetary scoring impediments to consideration of new strategies for federal infrastructure projects – particularly those that have proven successful like P3s – merits consideration. As the President appears to be advocating for a partnership with state and local jurisdictions to solve many infrastructure challenges, the ABA papers offer suggestions to help solve the deficit of investment in federal infrastructure projects.

On January 22, the Port of Long Beach Board of Harbor Commissioners approved construction of an on-dock rail facility that will allow the faster movement of cargo with lower environmental impacts, port officials said in a press release.

The new Pier B on-dock facility will allow more containers to be placed directly on trains at marine terminals. Currently, the ability to build long trains within the Port is limited due to the lack of adequate yard tracks and the configuration of mainline tracks.

Because no cargo trucks are involved in these moves, the new facility will have environmental benefits. The Final Environment Impact Report for the project estimates that it will “result in an overall reduction of an estimated 158,000 miles of truck traffic daily, or 11,000 fewer truck trips compared to the future No Project Alternative.”

Pacific Harbor Line, the Port’s designated operator has converted its fleet to clean diesel locomotives, which reduce air pollution and save fuel.

The facility will be located southwest of Anaheim Street and Interstate 710.

The next steps on the project are completion of preliminary design and the Board’s consideration of a baseline budget for the project.

A government shut down arises when Congress fails to pass an appropriations act that enables federal agencies to spend. There should be separate appropriations acts for groups of agencies. However, in recent years, Congress has not enacted these separate appropriations acts, but collected them in one enormous bill that includes virtually every agency of the federal government. Having created these monster bills, Congress then delays passage over battles about what programs or expenditures should or should not be included. This creates the delays that lead to government shutdowns. Most government employees may not work during a shutdown nor may they use government equipment. Employees away from their offices on business are brought home in anticipation of a shut down because once the shut down in place, they have no authority to use federal funds to travel. After the deadline for the appropriation has passed, employees may only return to work for a short time in order to provide for the orderly cessation of their agency’s activities. During a shutdown, employees performing “essential” or emergency functions must continue to work, which is why so many government agencies continue to operate partially during a shut down.

The federal government has shut down 18 times since the 1970s.[1] The longest shutdown lasted 3 weeks. The October 2013 shutdown lasted 16 days. Nearly 800,000 federal employees were out of work without pay (Congress later restored the pay lost by these federal employees, which has occurred after every shutdown), and more than a million other working employees had their paychecks delayed (even though having to work because their jobs were “essential,” there was no authority to pay in the absence of an appropriations act). Members of Congress however could keep collecting their paychecks due to a permanent appropriation for their compensation. The same was true of government employees whose pay was not tied to the appropriations act that Congress failed to enact. Standards & Poor’s estimated that the last government shutdown cost America $24 billion, or $1.5 billion per day.[2] This estimate is based largely on the imputed value of government services that are not provided or performed during a shut down. Of course, the direct cost of shutting down can be substantial as well.

The 2018 Shutdown lasted just about 60 hours until a band-aid was put on it, but the shutdown might well be reinstituted if a comprehensive agreement is not reached in the next few weeks. Anticipating the shutdown that went into effect on Saturday, the U. S. Department of Transportation published its plan for operations during a lapse in annual appropriations.[3] According to the Plan, 34,600 of the DOT’s 55,100 employees would continue working during a shutdown. Air traffic controllers, aviation, pipeline and railroad safety inspectors are among those who would continue to work. The largest group of employees remaining on the job work for the Federal Aviation Administration, which operates the nation’s air traffic control system. However, aviation won’t escape unscathed. Certification of new aircraft will be limited. Processing of airport construction grants, training of new controllers, registration of planes, air traffic control modernization research and development, and issuance of new pilot licenses and medical certificates will stop.

The Federal Highway Administration and the Federal Motor Carrier Safety Administration will continue most of their functions during a shutdown. As noted in this blog last time the government shut down, FHWA’s operations mostly are paid out of the Federal Highway Trust Fund.[4] The fund’s revenue comes from federal gas and diesel taxes, which will continue to be collected during the shutdown. However, any work on issuing new regulations would stop throughout the department and its nine agencies. This is because the regulations process involves officials outside of the agencies that may continue to work. The National Highway Traffic Safety Administration’s investigations of auto safety defects would be suspended, as would review of incoming information on possible defects from manufacturers and consumers, and compliance testing of vehicles and equipment will be delayed.

The Plan indicates the Federal Motor Carrier Safety Administration would not furlough any employees. Roadside truck inspections would continue because the trust fund supplies FMSCA money to support state law enforcement agencies doing the inspections. The same is true for scale houses.

Transit and rail programs and employees are less fortunate because their funding is mostly subject to annual appropriation.[5]

Truckload border crossings could see delays because the Customs and Border Patrol prioritizes security over speedy freight flows, and crossings depend on cooperation by several different agencies. The same is true of air and ocean imports.[6]

The severity of a shutdown’s impact will depend in large part upon how long it lasts. Following the 2013 shutdown, the Government Accountability Office (GAO) studied the shutdown’s effects on the DOT.[7] The study informs what types of activities may be expected to continue or be terminated during a shutdown.

Activities that did not continue during the shutdown included: FTA – unfunded core agency functions, including grants, cooperative agreements, contracts, purchase orders, travel authorizations, or documents obligating funds; FAA – development of new air traffic control specialists, aviation rulemaking, facility security inspections, evaluations, audits and similar activities; MARAD – administrative support excepting life and safety support and activities associated with the no-year Maritime Security Program, National Defense Reserve Fleet, and U.S. Merchant Marine Academy Operations; HMSA – strategic planning, public affairs, civil rights and pipeline program development.

In 2013 all FTA grants management employees were furloughed and unavailable to help grantees. According to FTA officials, this had limited consequences because the grant processing system is typically offline in early October. FTA officials said they returned to normal scheduling and timing of grant activities soon after the shutdown concluded because grant milestones were not scheduled to occur during the shutdown. The impact of a February shutdown may differ due to different timing considerations.

Ultimately, the GAO concluded that the 2013 shutdown’s long-term effects were difficult to assess in isolation of other budgetary impacts. The Bureau of Economic Analysis (BEA) estimated in January, 2014 that the direct effect of the shutdown on real GDP growth was a reduction of 0.3 percentage point, and the GAO reported that its forecasters believed the other economic effects to be minimal at the economy-wide level. With some luck and, hopefully, good will, the 2018 shutdown will remain shut down, its impact short-lived, without any lasting damage.

On December 21, 2017, the City and County of Denver and Denver Great Hall LLC reached financial close on the $1.8 billion Jeppesen Terminal redevelopment project (Great Hall Project) at Denver International Airport.

Following on the heels of Denver City Council’s approval of the Development Agreement and commercial close in August 2017, this represents a critical milestone in Denver International Airport’s plans to upgrade its signature terminal for the post-9/11 era by, among other things, relocating and modernizing its security screening areas and improving the passenger experience through the development and management of a new concessions program.

The project will leverage the expertise of Denver Great Hall LLC, a consortium led by Madrid-based Ferrovial Airports that includes equity members Magic Johnson Enterprises/Loop Capital and Saunders Concessions, and a design-build team of Ferrovial Agroman West and local contractor, Saunders Construction. The team was selected following a competitive procurement process and entered into a pre-development agreement with the Airport in September 2016.

The term of the Development Agreement is 34 years, comprised of an anticipated four-year construction period and a 30-year operating period. The maximum contract value of $1.8 billion includes $650 million in capital costs, a contingency for potential Owner-initiated changes, and annual supplemental payments following substantial completion. Revenues from the revamped concessions program will be shared 80%/20% between the Airport and Developer.

Developer’s financing consists of $189 million in short- and long-term private activity bonds, issued in eight tranches with maturities ranging from 2022 to 2049, and $73 million in equity. Citigroup served as the lead underwriter of the bonds. The bonds were rated BBB by Fitch and BBB- by Standard & Poor’s.

The Airport opened the “Great Hall” two decades ago, when it was designed to accommodate 50 million passengers each year. With the Great Hall now nearly 20 percent over capacity, and significantly higher passenger traffic projected in the coming years, the Great Hall Project “will greatly enhance security, improve passenger flow and return the terminal to a passenger oasis.” (https://www.flydenver.com/greathall).

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About Nossaman LLP

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